Weekly Mining & Projects Roundup

Global | Mining | Thu Nov 01, 2012

Our expectation for a bounce in Q412 is playing out well with the FTSE350 Mining Index, continuing in its upward trajectory sinceAugust. However, weexpect the bounce to be temporaryasChina's slowdownresumes in 2013and our bearishindustrialmetals viewplay out.Our below consensus view on iron ore prices will be particularly resonant for the FTSE 350 Mining Index as the companiesthatdominate its composition, BHP Billiton , Rio Tinto , Anglo American and Xstrata arepredominantlyreliant on iron ore profits.

Heading To 20,000...

UK - FTSE 350 Mining Index (Weekly Chart)

US Coal companies had a good week, most notably with positive earnings results for Peabody Energy . However, we maintain our bearish outlook for US coal companies as low natural gas prices will continue torestraincoal prices in the country. Furthermore, we expect greater regulation in the US coal industryoverthe coming years, especially with our expectation for Obama to be re-elected next month.Whilst companies such as Peabody and Arch Coal are innoimmediate threat,weexpectgreater consolidation in the coal sector as lowcoalpricesand rising costsresult in several bankruptcies in the US coal market in the coming years.

Mozambique: Mining Sector Boom Making Its Presence Felt - Coal accounted for 9.5% of Mozambique's exports in Q212, up from 2.6% in Q112 and 0.8% in 2011.Thisshare is set to growalmostexponentially over the coming years as output from mines in the north-western province of Tete come online. Tete reserves are some of the largest in the world and will drive the country's mining sector value from US$205mn in 2011 to US$760mn in 2017. We therefore expect to see coal becomean increasingly large part of Mozambique's exports, providing a significant boost to GDP growth.

Mining Sector Boom To Boost GDP Substantially

Mozambique - Mining Industry Vale

West Africa: Jindal Looking To Africa's Resources - Jindal Steel , India's second largest steel company, is looking at Africa's iron ore reserves for further growth opportunities. The company says it is nearing a US$2.0bn investment in West Africa. The company has yet to state which project will be acquiredbut announcedthat prospects are also being consideredin Sierra Leone, Guinea and Cameroon. We have highlighted this trend of Indian companies looking to Africa's deposits as the regulatory environment in India is particularly restrictive for new investment. This is likely to continue and we highlight iron ore deposits in West Africa and coal reserves in Southern Africaas best placedto attract attention given India's deficit in key steelmaking and power generation sources.

Key Developments: Americas

Brazil: Vale Announces Fall In Profits - Vale announcedaQ312 year-on-year net profitfall of66% on the back of lower iron ore prices and weakening global demand. In the same period Vale's net revenue fell to US$10.73bn, down 34% y-o-y . The fall in revenue and profit prompted the company to announce it would put on holdtheGuinea iron ore project and sell nickel assets in Canada due to high costs and declining ore grades. Though the firm statedthatfuture projects and investmentswill be reviewed, it maintained that it would complete expansion projects already underway in South America and Africa. However, Vale is unlikely to meetthe2012 capital expenditure goal put forth earlier this year given the selloff in iron ore prices. We remain below consensus on iron ore prices, expecting them to average US$115/tonne in 2013, compared to US$135/tonne in 2012 and US$176/tonne in 2011. Therefore, we do not expect Vale's profits to return to their previous highs anytime soon.

Vale Restrained By Weak Iron Ore Prices

Vale & Iron Ore Prices, Rebased

Canada: Teck Defers Capital Expenditure - Teck Resources, Canada's largest mining firm, announced a 78% y-o-y decline in Q312 profits, whilst sales declined 26%, largely due to a fall in metallurgical coal prices. To compensate for the declines, Teck announced it would defer US$1.5bn from its 2012 and 2013 capital expenditure plans while also cutting operating expenses. Teck's decrease in capital expenditure is in line with a broader global trend in the mining sector. Lower prices for coal and base metals and weaker global demand have led firms to cut back on investment into new, or greenfield, projects and instead focus on current operations.

Lower Prices To Restrain Any Rebound

Canada - Teck Resources Share Price (CAD)

Key Developments: Asia

Indonesia: Chinese Investors Jump On The Bandwagon For Refinery Investment - Tonghua Jianxin Metallurgy Co ,has opened the company's first office outside of China in Jakarta this month, with plans tobuild a smelter capable of processing up to 50 tonnes of nickel ore per day.In line with our expectations,the imposition of a 2014export ban on raw materials has prompteda string of Chinese companiesto undertake refinery investmentprojectsin Indonesia.Exporters with plans to construct smelters by 2014 will be exempted from the ban, but not without paying a 20% tax on raw mineral exports. We believe strong, albeit slower nickel demand growth from China, the world's largest consumer of nickel, will continue to spur growth in Indonesia's mining sector given the country's abundance of metal reserves and close proximity to key demand centres. Overall, we forecast Indonesia's mining sector value to reach US$132bn by 2017, growing at an annual average rate of 6.5% from 2011 levels.

On The Climb

Indonesia - Mining Industry Value & Growth

India: Bauxite Shortage Remains A Real Threat - Vedanta Aluminium , India's largest aluminium producer, has resumed operations at the company's refinery in Odishaafteran acute shortage of bauxite led to a 10-day hiatus in production. While we expect the proposed 2011 Mines and Minerals Development and Regulation (MMDR) bill to bring about positive developments in India's mining sector, growing environmental concerns, coupled with a lack of significant expansion plans, will continue to curb bauxite productionover the coming years. This is likely to be exacerbated bythe existence of significant hurdlesincludingantiquated infrastructure, red tape and a hostile security landscape due to the prevalence of the Maoist insurgent groups in the eastern state of India, wheremost of thecountry's bauxite reserves are located.

Compensating With Imports

India - Bauxite, Alumina & Aluminium Imports, 2002-2012 (tonnes)

Kazakhstan: One Bright Spot To Keep A Close Eye On -The Kazakh authorities recently approved the development of the Karchiga copper project by Orsu Metals , a London-based precious metals company. We believe theabundance of mineral reserves in Kazakhstan has colossal potential for development and could effectively transform the country into one of the world's hottest regions for mining investment. As a central Asian country, the strategic location of Kazakhstan provides mining companies with easy access to the key commodity marketsofChina and India.Althougha proliferation of labour disputes across the land-locked country will continue to dent Kazakhstan's political risk profile, President Nursultan Nazarbayev's firm grip on security forces will see to it that investor appetite remains anchored. The government's renewed focus on instilling a positive investment climate will be a major boon to the mining space going forward.

Access all of our latest analysis, data and forecasts - request a trial

Related Articles

Global mining regulation will continue to follow disparate trends on a country-by-country basis over coming quarter...Global mining regulation will continue to follow disparate trends on a country-by-country basis over coming quarters. In this article we track the key developments seen s...

A slowdown in global mined lead production growth will slash refined lead output growth over the coming years. This...A slowdown in global mined lead production growth will slash refined lead output growth over the coming years. This dynamic will be a key factor contributing to growing d...

We expect the Bloomberg World Mining Index to trade within the 200-250 range over the coming months due to a renewe...We expect the Bloomberg World Mining Index to trade within the 200-250 range over the coming months due to a renewed slowdown in Chinese economic growth and a strong US d...

Related Blogs

Business Monitor International (BMI) has just published a new special report ‘Frontier Mining: After The Super-Cycl...Business Monitor International (BMI) has just published a new special report ‘Frontier Mining: After The Super-Cycle’, which examines the prospects for mining investment ...

A renewed slowdown in Chinese economic growth in the second half of 2013 will be the key theme in the mining sector...A renewed slowdown in Chinese economic growth in the second half of 2013 will be the key theme in the mining sector this year, negatively affecting worldwide metal demand...

Business Monitor International (BMI) expects more Indian companies to venture overseas in the pursuit of copper, co...Business Monitor International (BMI) expects more Indian companies to venture overseas in the pursuit of copper, coal, and iron ore, as the economy experiences rapid grow...

Related Podcasts

The increasingly important economic relationship between Asia and Sub-Saharan Africa has been widely commented on, ...The increasingly important economic relationship between Asia and Sub-Saharan Africa has been widely commented on, but remains poorly understood. Most analysis focuses so...

Despite another tough year for the global mining sector, BMI expects parts of the Sub-Saharan African mining indust...Despite another tough year for the global mining sector, BMI expects parts of the Sub-Saharan African mining industry to outperform. We have recently published a special ...

BMI expects global mining M&A to pick up over the coming quarters. This will be driven by the low valuations of...BMI expects global mining M&A to pick up over the coming quarters. This will be driven by the low valuations of mining firms, the push for operational efficiency in t...